American Apparel

American Apparel Reports Full Year 2010

Financial Results Analysis

12/4/2011

GROUP 8 SECTION A

T. ADARSH KUMAR(SMBA11030) PRAKASH RANJAN( SMBA 11020) NAVNEETH LOYA( SMBA 11019) SAMADH HAIDER( SMBA 11072) KALYAN KRISHNA DUTT( SMBA 11014)12/4/2011

INTRODUCTION:

American Apparel is a clothing manufacturer in the United States. It is a vertically integrated clothing manufacturer, wholesaler, and retailer that also perform its own design, advertising, and marketing. It is best known for making basic, solid-color cotton knitwear such as T-shirts , but in recent years it has expanded--to include leggings, leotards, tank tops, vintage clothing, dresses, pants, denim, nail polish, bedding and accessories for men, women, children, babies, and dogs in various prints and colors.

Current position of American Apparel 2010

Known for its cotton basics - including the infamous Y-fronts so beloved of the founder himself - shares of the LA-based company touched $14 (£9)in 2008. That same year, the Guardian named American Apparel label of the year. In 2009, Charney who is the founder, was a finalist for Time's 100 most influential people in the world.

Yet last week 25 august 2010, his company's shares were trading at an all-time low of 75 cents - a drop of almost 50% in the last week, forcing American Apparel to admit that it now has debts of $120m and is losing money at a rate of nearly $30m a year.

With sales down by 16% in its 279 shops globally - 15 in the UK - the company whose clothes were worn by the coolest kids across the world is now at risk of breaching the terms of an $80m loan provided by British company Lion Capital, in March 2009 - a loan advanced to rescue it from another financial crisis. If Lion Capital call in its loan, American Apparel will be forced into receivership.

In 2008, Charney - founder of the largest manufacturer producing garments in America - gave $25m of company shares to his employees. American Apparel still owns all its retail stores, rather than franchising them, and Charney - who is obsessive about his brand, throwing tantrums about everything from stock allocation to necklines - still holds, for the time being, a 53% stake. He explicitly resists being labelled as a manufacturing tycoon with a heart of gold, or even a Jekyll and Hyde, happily admitting that he acts not for moral reasons but because it is a better business strategy.

American Apparel is now scrambling to work out a deal with a major lender, Lion Capital, which also owns an approximately 18 percent stake in the company. The company has warned that by the end of June it likely won't be able to meet the debt-to-earnings ratio that is required under its agreement with Lion Capital.

Financial statements of year 2009 & 2010

AMERICAN APPAREL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share amounts)

Three Months Ended December 31, Year Ended December 31,

2010 2009 2010 2009

Net sales $ 143,969 $ 158,112 $ 532,989 $ 558,775

Cost of sales 63,870 71,095 253,080 238,863

Gross profit 80,099 87,017 279,909 319,912

Operating expenses 91,985 77,558 329,962 295,497

(Loss) Income from operations (11,886 ) 9,459 (50,053 ) 24,415

Interest expense 6,661 4,443 23,752 22,627

Foreign currency transaction (gain) loss (66 ) (236 ) (686 ) (2,920 )

Unrealized loss on change in fair value of warrants 369 - 993 -

Other (income) expense 275 71 39 (220 )

(Loss) Income before income taxes (19,125 ) 5,181 (74,151 ) 4,928

Income tax provision 178 2,132 12,164 3,816

Net (loss) income $ (19,303 ) $ 3,049 $ (86,315 ) $ 1,112

Basic (loss) earnings per share $ (0.27 ) $ 0.04 $ (1.21 ) $ 0.02

Diluted (loss) earnings per share $ (0.27 ) $ 0.04 $ (1.21 ) $ 0.01

Weighted average basic common shares outstanding 72,327 71,034 71,626 71,026

Weighted average diluted common shares outstanding 72,327 76,826 71,626 76,864

AMERICAN APPAREL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except per share amounts)

December 31, 2010 December 31, 2009

ASSETS

CURRENT ASSETS:

Cash $ 7,656 $ 9,046

Trade accounts receivable, net of allowances of $2,630 and $1,763 at December 31, 2010 and 2009, respectively 16,688 16,907